The vertically integrated cannabis MSO had its first harvest at its Oakland facility and has its sights set on cup season.
If you walk into The Kremlin, you can be hit by the warm, welcoming smell of cannabis—just make sure you’re in the Bay Area around harvest time, not Moscow.
The Kremlin is Unrivaled Brands’ cultivation facility in Oakland, Calif., where the vertically integrated multi-state operator recently harvested its first crop.
The company launched The Kremlin in September. The facility is set to become the main production hub for the company’s Korova brand, which is positioned as high-quality, high-potency indoor flower in California’s market, and features exotic genetics like Alien Blackout, Russian Doll, and Baby Yoda. The company expects the facility to produce 3,500 pounds of cannabis annually, per a Dec. 6 press release.
“The facility has performed tremendously right off the bat and we couldn’t be happier with it,” Uri Kenig, Unrivaled Brands’ COO told Cannabis Business Times.
Unrivaled Brands has cultivation and distribution operations in both California and Oregon, as well as retail and delivery services in the Golden State. In Nevada, Unrivaled is a partner with NuLeaf, an indoor cultivation operation.
The Kremlin consists of four flowering rooms decked with 60 high-pressure sodium (HPS) lights apiece. Plants are grown in 6-inch rockwool cubes, but Brian Linao, the company’s cultivation director, is experimenting with different media. In addition to producing sellable product, the first harvest at the Oakland facility set a baseline against which Linao intends to compare results from different inputs.
“The lessons that we’re learning are about the crop steer,” Linao said. “The way we use irrigation, and tying it in with the lights and the nutrients that we use, we’re learning each genetic as [we go]. … The genetics are definitely doing things differently with our crop steering. For instance, with Alien Blackout, we use 80% of our light [capacity], but for the Russian Doll, I can use 115% of my lights. … It’s all about crop steering for us right now.”
The four flowering rooms each have a slightly different environment best suited for the genetics in those rooms, and each room has a section dedicated to R&D, whether that’s manipulating light intensities or irrigation rates.
“We're doing this thing called ‘charged steering,’ where we might charge [our media] … to 3-3.2 EC and taper down,” Linao said. “We’re finding how the plants are reacting to each type of steering we’re doing right now.”
Moving forward, Linao and the Unrivaled team will trial different growing media (with an emphasis on soils) to identify which medium is best suited for each genetic, all in the hopes of maximizing the qualities the company looks for in its offerings: potency, bag appeal, nose appeal, and a smooth burn—the genetic “unicorns,” as Linao puts it.
“We're preparing to win any cup, really, with these items,” he says.
The company's plan is to “leverage [a] growing portfolio of U.S. CPG brands to launch THC-based product adjacencies upon federal legalization in the U.S."
Tilray announced this week that the company will acquire Colorado-based Breckenridge Distillery for an undisclosed sum. The plan, executives say, is to launch THC-infused spirits whenever the U.S. legalizes cannabis.
Breckenridge Distillery was founded in 2008. The company is most well known for its bourbon whisky blends.
"Tilray’s strength lies in our ability to identify and significantly expand leading CPG lifestyle brands that resonate powerfully with consumers,” Tilray CEO and chairman Irwin Simon said in a public statement. “Breckenridge Distillery is an iconic addition to our platform in this respect based on its portfolio of award-winning spirits, passionate consumer engagement, and a strong sales and distribution network. We see tremendous potential for Breckenridge and our existing SweetWater brand to complement each other, expanding their respective reach and driving further profitable growth in our beverage alcohol segment.”
SweetWater is a Georgia-based brewery that Tilray acquired last year via the blockbuster merger with Aphria.
The Breckenridge Distillery announcement continues Tilray’s plan to “leverage [a] growing portfolio of U.S. CPG brands to launch THC-based product adjacencies upon federal legalization in the U.S.,” as Simon said in his public statement.
While a statement released by the DSHS ignited a lawsuit over delta-8 THC, attorneys say the cannabinoid’s legality was in question even before the state agency stepped in.
Texas hemp companies are fighting back against the state’s recent ban on delta-8 THC.
The ban stems back to a statement made by Texas Department of State Health Services (DSHS) in late October clarifying that delta-8 is a Schedule I controlled substance and is illegal under H.B.1325—legislation signed into law by Gov. Gregg Abbott in 2019 to legalize the cultivation of hemp in Texas, Hemp Grower previously reported.
DSHS' statement reads: "Texas Health and Safety Code Chapter 443 (HSC 443), established by House Bill 1325 (86th Legislature), allows Consumable Hemp Products in Texas that do not exceed 0.3% Delta-9 tetrahydrocannabinol (THC). All other forms of THC, including Delta-8 in any concentration and Delta-9 exceeding 0.3%, are considered Schedule I controlled substances."
Companies have since filed lawsuits in attempt to reverse that ban, and they succeeded temporarily. But the state and attorney general have worked to reverse that, leaving the parties to work out the issue through lawsuits currently moving through courts.
The state’s tumultuous history with delta-8 is one that started even before the DSHS stepped in.
The Debate Over Delta-8’s Legality in Texas
Since H.B. 1325 does not address delta-8 specifically, many retailers and manufacturers assumed the substance was legal and continued selling such products until DSHS released its statement.
Shane Pennington, who serves as counsel at Vicente Sederberg LLP, a national cannabis law firm, says it’s unclear whether delta-8 wasn't already illegal in Texas before DSHS released its statement for a "number of reasons."
He says he’s heard of law enforcement arresting citizens for possession of delta-8 because of the Texas Health and Safety Code 481.103(1). Pennington says the measure includes synthetics, derivatives, extracts, isomers and more, and also includes a "such as" section, where it lists "delta-6 cis or trans tetrahydrocannabinol and their optical isomers."
"That's a bunch of organic chemistry that I can't claim to be an expert in, but I do know that back in the day, delta-6 [trans] was another term or another way of saying that the chemical name of delta-8," he says. "So, that I think is significant because, like I said, these other arrests have been under that" and not because of the DSHS’s new statement, Pennington says.
However, Jay Maguire, executive director at the Texas Hemp Federation, disagrees and says the statements surrounding Texas' delta-8 ban are "asinine."
"The notion that delta-8 has always been illegal is simply a lie," Maguire says. "Hemp has been legal in Texas for the first time only since 2019. DSHS has made statements in public like delta-8 has been illegal for 40 years. They're conflating two different kinds of delta-8. What they're referring to there is marijuana-derived delta-8, not hemp-derived delta-8."
While delta-8’s legality in Texas before DSHS’s statement is in question, Shawn Hauser, partner and co-chair in the Hemp and Cannabinoids Department at law firm Vicente Sederberg, says she thinks DSHS released the statement in response to just that: industry confusion.
“The notice [from the] Department of State Health Services I think was really responding to stated confusion in the industry, and I think [confusion] amongst enforcement regulators in the state as to the legal status of delta-8, because there has been an increasing demand in the market, particularly in states where there are not robust regulated cannabis programs," Hauser says.
However, in some ways, DSHS's statement seemed to create more industry confusion and frustration—leading some to take legal action.
Shortly after DSHS released its statement, Sky Marketing Corp., which does business as Hometown Hero, filed a lawsuit in the Travis County district court requesting a temporary restraining order to block the state's ban on delta-8 THC.
Maguire, who works with Hometown Hero on the case, says the arguments in the lawsuit are specifically about how "DSHS violated the Administrative Procedures Act and other aspects of the Texas code, [and] deliberately concealed the decision that they were going to make."
Specifically, the plaintiffs claim that DSHS failed to follow the proper procedures to make such alterations, like holding a proper public hearing, and did so inconspicuously instead.
"I think part of the claim of the plaintiffs is that it wasn't clear," Hauser says. "[The notice] was on an image instead of text, [making] it hard to find by the public. ... But the state claims that there's been a sufficient notice and comment period, including [a] hearing in October, and that this notice in the register wasn't the only one at issue."
"[DSHS is] required to post a notice of public hearing, and that notice of public hearing is supposed to be in plain English, describing exactly what action they're going to consider," Maguire said. "The law in Texas would have required [DSHS] to consider medical and scientific evidence, for example. So, not only did they fail to give public notice—we still don't actually know where they posted their public notice if they ever did—they did not take any testimony or evidence. In fact, the state itself admits that nobody showed up for the 7-minute Zoom call that the commissioner held [in October]."
According to Hometown Hero CEO Lukas Gilkey, nearly 1,200 people tuned in to watch the district court hearing in November, compared to the zero who reportedly showed up to the public comment hearing in October.
"It was obvious that it was sort of a sham," Gilkey says. "... DSHS essentially broke their own rules to do something against cannabis—that's kind of the root of the story."
Overall, Hauser says she thinks both sides have a legitimate case.
"Given some of these hearings that the state had on this issue, the state does have a legitimate argument here as to following proper procedure. But, I think there are some compelling arguments as to [the state] following the Administrative Procedures Act," Hauser said.
After Hometown Hero filed its lawsuit, State District Judge Gary Garger denied the retailer's request to block the ban in late October, stating that the "plaintiff has not met the requirements of a temporary restraining order.”
Vape City, another Texas-based CBD retailer, filed a separate temporary restraining order against DSHS’s stance on delta-8 this year, which was also denied.
Shortly after Garger denied Hometown Hero's request, State District Judge Jan Soifer barred the state from listing delta-8 as a Schedule I drug, making the cannabis compound legal again under a temporary injunction.
However, the legality was short-lived, as the state quickly fired back and filed a notice of appeal Nov. 10, putting delta-8 and related hemp-derived isomers back on Texas' list of controlled substances.
"The Texas law allows the attorney general's office basically to suspend an injunction,” Hauser says. "So even though the court barred the rule, the attorney general's office can temporarily suspend that bar.”
In response to the appeal, Hometown Hero “submitted an emergency motion to uphold its temporary injunction,” which was approved by the Third Court of Appeals of Texas Nov. 28, according to a press release.
The reinstating of the injunction means delta-8 products are once lawful again in Texas, Hauser says. “The temporary injunction will remain in place until there is a final trial on the merits, which is scheduled for Jan. 28, 2022,” she adds.
Gilkey says Hometown Hero will continue to fight and push for the legality of delta-8, especially for individuals who use such products as medical treatment.
"Something that I wasn't really expecting with this case [is] the amount of outreach that we've had with people who are saying, ‘Look, these products are a lifesaver for me. I'm not trying to get high. I actually need these products to survive as a human being.' I think, to me, that's the most groundbreaking part of the case," Gilkey says. "We all knew that was a component to this, but to actually have thousands of people tell us [that], ... I don't understand how you could fight against that. These are people that Jay [Maguire] and I feel like at this point, nobody else is fighting for, and we have to fight for them."
Additionally, Maguire says Hometown Hero is willing to "embrace reasonable regulation" during the state's next legislative session if it’s something the government is willing to have an honest conversation about.
"We will be pushing for it. We'll be proposing legislation that creates regulations to permit the use of delta-8 and other cannabinoids under reasonable conditions," Maguire says. "So, we're not looking for a free-for-all here. We're not looking to ask for any kind of special treatment. But what you have to understand is Texas has been so anti-drug [and] the system here is so restricted that people here are having to turn to alternatives.”
The investment bank’s ‘THEMES 2022’ handbook provides data, opinions and forecasts about the cannabis industry, from lobbying efforts to MSO expansions.
In its THEMES 2022 handbook, which focuses on cannabis and 13 other areas, investment bank Cowen stated that its analysts view U.S. federal cannabis legalization as inevitable and provided various industry predictions.
Cowen analysts estimate in the report, published Dec. 6, that the U.S. cannabis industry’s total available market will reach $84 billion in 2026.
Below are some other observations, views and predictions outlined in the report.
Whether U.S. federal legalization occurs in 2022, which as the THEMES report declares “is conceivable … either as a result of bipartisan legislation ahead of the November midterm elections, or potentially in the lame duck period,” states with large populations are still growing their cannabis markets and garnering public support, analysts say.
In addition, states have served as leaders in how they incorporate social justice into their legalization efforts, according to the report, which notes the policymaking intent of social equity programs.
“COVID-19 has also served to accelerate state-level legalization, particularly in geographies with industries hit especially hard by the pandemic,” the report states. “New York State notably passed its cannabis legislation on March 31, 2021, relatively soon after its introduction earlier in the same year, and in partial response to a budgetary gap caused by loss of tourism and hospitality revenues.”
States that could experience significant growth over the next several years include New York, Pennsylvania, New Jersey, Virginia and Arizona, per THEMES. By 2025, Cowen analysts predict, those markets could reach $3.1 billion, $2.8 billion, $1.4 billion, $1 billion, and $2.4 billion, respectively.
Eventually, New York could become the second-largest cannabis market in the U.S. behind California, with $5 billion in sales, the analysts estimate.
Multi-state operators (MSOs) have merged with and acquired companies to expand, providing clear vectors of growth across the country.
“MSOs have layered in assets to realize improved profitability from vertical integration within each state while also growing regional, and in some cases national, brands despite the structural limitations of a state-by-state legal framework,” according to the report.
Between 2019 and 2020, the 15 leading U.S. MSOs increased their average adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) from -33% to -22%, per THEMES.
Cowen analysts say they are keeping an eye on MSOs with the potential to impact state-legal markets such as New Jersey, New York, Pennsylvania and Virginia.
The report states: “In addition, we see opportunities for MSOs to create optionality for boosts to profitability as they add ancillary asset-light businesses to their portfolios. New models emerging around electronic payments and other business service platforms are poised for growth as state and Federal-level legalization frameworks evolve, and these enabling assets could also provide early mover advantages to the MSOs acquiring or developing them.”
Various Lobbying Approaches and Paths to Federal Legalization
The THEMES report specifically highlighted that it’s possible that the U.S. federal government could pass legislation that would defer cannabis legalization to states.
RELATED: Cannabis Industry Stakeholders, Policymakers Share Perspectives on States Reform Act
“This should resolve the current 280E federal prohibition on tax deductibility of expenses by cannabis businesses, and would also allow cannabis companies traditional access to U.S. securities exchanges, commercial banking services, and capital markets,” the report states.
Cowen analysts believe that cannabis legislation is unlikely to receive the necessary bipartisan support to pass if it includes social justice measures, such as criminal record expungement and social equity provisions.
The report states: “Should the Senate fail to reach agreement on a STATES Act approach, we believe that SAFE Banking legislation would be enacted as a fallback position. This could be kept narrow to only address access to commercial banking and insurance, or it could serve as the foundation for a compromise bill that stops short of legalization but offers relief from the 280E tax burden and opens cannabis to capital markets, including stock exchange listings. There would likely be a Federal excise tax to offset the cost of 280E relief and to fund some social justice measures.”
Various cannabis industry lobbyists have sought to move different pieces of legislation forward, “diluting the impact of lobbying efforts,” according to the report.
Cowen will track how lobbyists can be unified in how they approach federal legalization, per THEMES.
“We will view signals of coordination positively, while evidence of continued fragmentation could augur negatively for any wide-ranging Federal cannabis relief,” the report states.
The Cannabis Travel Association will host its annual virtual Cannabis Travel Summit on December 14 and 15, featuring guest speakers and comprehensive cannabis travel data.
The Cannabis Travel Association (CTAI) will host its annual virtual Cannabis Travel Summit from Dec.14-15.
The summit, Cannabis Travel: Now and Next, will feature a range of guest speakers, cannabis travel data, educational sessions and presentations, networking opportunities, and more, according to the association. Barb Newton, president and CEO of the California Travel Association, will be this year's keynote speaker.
The event will also share CTAI's 2021 State of Cannabis Travel Data Publication, with contributing sources from Headset, New Heights Cannabis, MMGY Travel Intelligence, and association team members.
"As a global travel industry rebuilds from the devastation of COVID-19, the essential cannabis-related travel trend offers a tremendous opportunity," said CTAI Founder and Chairman Brian Applegarth. "Our annual summit brings us together as a community to exchange information, network, voice concerns, share successes, and problem-solve together at the intersection of cannabis and travel."
Interested attendees can register for the event online here.
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